After finishing the week as the worst performing sector amid growing recession fears, the energy sector has been paring back losses with WTI crude up 1.7% to $79.79/barrel while Brent has added 1.3% to trade at $87.42/barrel in Wednesday’s intraday session. Risk averse sentiment also hit U.S. natural gas futures, with the front-month October contract falling nearly 10% over the past week to trade at $6.54/MMBtu.
Oil prices are a long way off their mid-June peak, when Brent traded at $129/bbl. Since those peaks, stocks of companies that are sensitive to underlying commodity prices have performed poorly compared to those that are less sensitive to oil prices. The energy sector’s popular benchmark the Energy Select Sector SPDR Fund (NYSEARCA: XLE) is down 25% from its early June peak. Not surprisingly, the majority of Big Oil companies have given up a lot of their earlier gains, demonstrating their sensitivity to oil prices. Here’s how the oil majors have performed since their June peak:
Exxon Mobil Inc. (NYSE: XOM)-18.0%, Chevron Inc. (NYSE: CVX)-22.0%, Marathon Petroleum Corp. (NYSE: MPC)-18.3%, Phillips 66 (NYSE: PSX)-29.6%, Valero Corp. (NYSE: VLO)-29.6%, Shell Plc (NYSE: SHEL)-21.9%, BP Plc (NYSE: BP)-19.4%, Total Energies (NYSE: TTE)-25.6%, Eni S.p.A (NYSE: E)-34.1%.
On a brighter note, the selloff has created some real bargains in the Oil Patch. The energy sector is currently trading at a PE ratio of 9.9x considerably cheaper than the 23.9x multiple back in April. Here are some even cheaper oil and gas stocks.
Market Cap: $10.21B
P/E Ratio (Fwd): 4.23
YTD Returns: 17.7%
Ovintiv Inc. (NYSE: OVV) is a Denver, Colorado-based energy company that, together with its subsidiaries, engages in the exploration, development, production, and marketing of natural gas, oil, and natural gas liquids.
The company’s principal assets include Permian in west Texas and Anadarko in west-central Oklahoma; and Montney in northeast British Columbia and northwest Alberta. Its other upstream assets comprise Bakken in North Dakota, and Uinta in central Utah; and Horn River in northeast British Columbia, and Wheatland in southern Alberta.
Back in July, Mizuho upgraded OVV to $78 from $54 (good for 88% upside to the current price), citing improving tailwinds.
Market Cap: $4.49B
P/E Ratio (Fwd): 3.78
YTD Returns: 12.3%
Another Denver, Colorado E&P company, Civitas Resources, Inc.(NYSE:CIVI) focuses on the acquisition, development, and production of oil and natural gas in the Rocky Mountain region, primarily in the Wattenberg Field of the Denver-Julesburg Basin of Colorado.
As of December 31,2021, it had proved reserves 397.7 MMBoe comprising 143.6 MMbbls of crude oil, 106.0 MMbbls of natural gas liquids, and 888.5 Bcf of natural gas.
Benjamin Halliburton, chief investment officer at Building Benjamins, has recommended buying Civitas saying that the company’s strong balance sheet and increasing free cash flow could propel the shares to $110 next year, good for nearly 100% upside, and its annual dividend payout could hit $6 up from $1.63 currently.
Market Cap: $2.91B
P/E Ratio (Fwd): 4.10
YTD Returns: 19.6%
Enerplus Corporation (NYSE: ERF)(TSX: ERF), together with subsidiaries, engages in the exploration and development of crude oil and natural gas in the United States and Canada. The company’s oil and natural gas properties are located primarily in North Dakota, Colorado, and Pennsylvania; and Alberta, British Columbia, and Saskatchewan.
As of December 31, 2021, the company had proved plus probable gross reserves of approximately 8.2 million barrels (MMbbls) of light and medium crude oil; 20.7 MMbbls of heavy crude oil; 299.3 MMbbls of tight oil; 56.2 MMbbls of natural gas liquids; 19.7 billion cubic feet (Bcf) of conventional natural gas; and 1,367.9 Bcf of shale gas.
Jason Bouvier, analyst at Scotiabank, told the Financial Post has picked Enerplus as one of Canada’s energy companies with the lowest capex breakevens (including hedging gains).
Market Cap: $53.77B
P/E Ratio (Fwd): 5.45
YTD Returns: 91.8%
Headquartered in Houston, Texas, Occidental Petroleum Corporation (NYSE: OXY) together with its subsidiaries, engages in the acquisition, exploration, and development of oil and gas properties in the United States, the Middle East, Africa, and Latin America. The company also owns a Chemical segment that manufactures and markets basic chemicals, including chlorine, caustic soda, chlorinated organics, potassium chemicals, ethylene dichloride, chlorinated isocyanurates, sodium silicates, and calcium chloride; vinyls comprising vinyl chloride monomer, polyvinyl chloride, and ethylene.
Back in May, Ecopetrol (NYSE:EC) announced an agreement to develop four deepwater blocks off the coast of Colombia with Occidental Petroleum. Ecopetrol revealed that it will take a 40% stake in the blocks while Occidental subsidiary Anadarko Colombia will have a 60% stake and will serve as operator.
Canadian Natural Resources
Market Cap: $50.26B
P/E Ratio (Fwd): 4.96
YTD Returns: 8.2%
Canadian Natural Resources Limited (NYSE: CNQ) acquires, explores for, develops, produces, markets, and sells crude oil, natural gas, and natural gas liquids (NGLs).
As of December 31, 2020, the company had total proved crude oil, bitumen, and NGLs reserves of 10,528 million barrels (MMbbl); total proved plus probable crude oil, bitumen, and NGLs reserves were 13,271 MMbbl; proved SCO reserves were 6,998 MMbbl; total proved plus probable SCO reserves were 7,535 MMbbl; proved natural gas reserves were 12,168 billion cubic feet (Bcf); and total proved plus probable natural gas reserves were 20,249 Bcf.
In August, Canadian Natural Resources reported better than expected Q2 adjusted earnings as it delivered record quarterly average natural gas production. Q2 net earnings more than doubled to C$3.5B (US$2.72B), or C$3.00/share, from C$1.55B, or C$1.30/share while cash flow from operating activities more than doubled to nearly C$5.9B from $2.9B a year earlier.
Q2 production increased to 1.2M boe/day from last year's 1.1M boe/day while natural gas output jumped 5% Q/Q and 30% Y/Y to a quarterly record 2.1M cfe/day. Meanwhile, Canadian Natural Resources raised its capital spending guidance to C$4.92B from its previous plan for C$4.345B, largely due to inflationary pressures.
By Alex Kimani for Oilprice.com
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